Blog Post

Most investors are aware of their ISA options and might even have an existing ISA. In all likelihood, it’s a cash ISA or a stock and shares ISA. Both are common ISA options, but returns can be paltry (in the case of the former) or inconsistent (in the case of the latter). Enter the property-based ISA – a more recent entry into the ISA space. It combines property investment opportunities with an ISA, generating potentially higher returns than a cash ISA in a shorter time period. But what is a property ISA and why is it a smart investment option? The key to understanding how property ISAs work is to grasp the concept of peer to peer lending. This is effective, short-term ‘bridging’ loans extended to homebuyers and to property developers secured against their property asset. Peer to peer property lending gives borrowers who either can’t or don’t want to secure traditional bank finance the money they need, and it gives investors a way to buy into the market. Returns are generated as the borrower repays the loan with interest.

Property ISA vs. Cash / Stocks and Shares ISAs

A property ISA is an excellent way to get involved in secured property investments at a low-entry point and earn consistent, predictable and tax-free returns without the hassle that comes with actually becoming a landlord. Secured peer to peer ISAs typically offer fixed returns, although these are not guaranteed and like with any investment there is an element of risk. Sometimes peer to peer loans are not repaid on schedule. This is most frequently down to pretty mundane reasons – for instance, if the borrowers’ repayment strategy is to sell the property (or properties), most of us who have bought or sold a property will know that this isn’t an exact science and dependent on finding a buyer. But a secured property ISA should mitigate this risk by diversifying your funds across multiple loans, thus reducing the impact of delays. A cash ISA works much the same as a normal bank savings account, and most high street banks offer several types. At the time of writing (October 2018), the best available rate on price comparison sites is just 1.51% – well below the current rate of annual price inflation, which means your money will effectively be worth less when the ISA matures. A stocks and shares ISA, on the other hand, is quite different from a bank account. With this type of ISA, you’re not saving money – you’re investing in it. So, while it’s likely to offer better returns than a cash ISA over time, it does come with all the inherent volatility and risk that comes with investing in the stock market. Peer to peer loans made through your property ISA also comes with a degree of risk, but each loan is secured against the underlying value of the property.

The House Crowd’s property ISA

If you’re looking for a secure property ISA that needs minimal management and aims to produce fixed (albeit not guaranteed) tax-free returns, The House Crowd’s property ISA is the one for you. The House Crowd’s Innovative Finance ISA (IFISA) is a property ISA made up of a variety of our peer to peer bridging loans and property development loans. We automatically diversify your investment as far as possible across our secured loan portfolio, so that you don’t have to spend the time managing an investment portfolio. Meanwhile, you can enjoy the significant returns and tax benefits of an Innovative Finance ISA. Uniquely, some of the funds are invested in property developments built by our sister company – House Crowd developments. We specialise in building homes in the North West, tapping into the collective in-house experience of our specialist property team. You can start investing from £1,000 and earn 7% p.a. tax-free. If you’re saving for the future you can reinvest by ‘compounding’ your interest, or if you’d prefer to receive a regular income from your property ISA you can receive an interest payment twice a year. If you already have a cash ISA or stocks and shares ISA, you can now transfer your ISA to The House Crowd. It’s free of charge for balances of £5,000 or more.